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7 Offshore investment questions to ask

There are ramifications attached to offshore investments. We spoke to an expert to help you decide whether they're for you.

2 November 2021 · Joshua White

7 Offshore investment questions to ask

There are many reasons to consider investing offshore. Investing your money abroad can give you exposure to a range of asset classes, products, and services that are not available locally.

However, there are ramifications and limitations attached to offshore investments. We spoke to Erik Olwagen, head of international banking distribution for South Africa at Standard Bank, to help you decide whether offshore investments are for you.

Why do people invest offshore?

According to Olwagen, the main reason investors turn their attention to offshore markets is to diversify their wealth. He notes the following additional incentives.

  • Retiring abroad. In this instance, investors choose to build reserves in another currency.
  • Opportunities to study. Having offshore investments can facilitate children studying abroad.
  • Travel and leisure. Here investors seek to build funds in a hard currency as opposed to their local currency. Hard currency is money issued by a country that is seen as politically and economically stable.
  • Working abroad. It can be worth retaining funds earned abroad in the local currency, especially if it is a hard currency.

How can you invest offshore?

Olwagen says, “The first step to investing offshore would be to open up an international bank account in an offshore jurisdiction, such as the Isle of Man, in your currency of choice.

“Once you have built up some funds, you will need to establish which investments are suitable for your objective. It’s important to speak to your broker about this.”

What offshore investment options are there?

While the choices are many, some more accessible options include:

  • Savings accounts. These include notice- and fixed-term deposits in a hard currency.
  • Structured products. These are typically investments that run for a fixed term. They offer some form of capital protection while still offering exposure to markets.
  • Offshore unit trusts. These are open-ended investments with several options with regards to asset and geographical allocation. They also offer single or multi-manager options.
  • Portfolios. In this option, a dedicated portfolio manager runs a portfolio to suit specific investment needs.
  • Direct trading. Here the investor manages their own portfolio of offshore instruments on a trading platform, enabling them to make their own investment decisions.

What are the limitations to investing offshore?

According to Olwagen, “Limitations are dependent on where you are based and the exchange control of your country of residence. In South Africa, for example, you are limited to how much you can externalise every year.”

How are you taxed when investing offshore?

Olwagen explains, “This all depends on your tax status. However, generally speaking, South Africa operates on a residence-based tax system. This means that you will be taxed on your worldwide assets and not just your local assets."

Olwagen strongly recommends that you seek professional tax advice on any international transaction you are hoping to execute. 

Where should you invest?

The choice of investment area will depend primarily on your chosen product suite and your investment objectives.

Olwagen says, “You can, for instance, get exposure to different markets around the globe without having to send money to those jurisdictions. This would apply to unit trust funds that operate in the US, the UK, and Europe. It depends on your objectives and appetite for risk.” 

What are some general tips?

Olwagen’s first piece of advice is that you speak with a field-specific broker or specialist to ensure that you make informed decisions that are linked to your specific goals.

He also explains, “A long-term view is required to offer your investments the best opportunity for growth. Your broker can guide you through the relevant options and investments available to you.”

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